D 635 
.S4 
Copy 1 



AN 

ECONOMIC INTERPRETATION 
OF THE WAR 



BY 

EDWIN R. A. 3ELIGMAN 

McVickar Professor of Political Economy, Columbia University 



TifipTinted from 
' PROBLEMS OF READJUSTMENT AFTER THE WAR ' 



D. APPLETON AND COMPANY 

NEW YORK 
1915 



^\ 



II 



AN ECONOMIC INTEEPRETATION OF 
THE WAR 

Edwin R, A. Seligman 

There have been almost as many explanations 
of the great war as there have been writers. 
The explanations, moreover, have ranged over 
a very wide field : personal jealousies, dynastic 
differences, militarism, wounded pride, the en- 
deavor to round out political boundaries, racial 
antagonism, not to speak of such high-sounding 
phrases as struggle for liberty, or fight for na- 
tional existence — all these and many more have 
been advanced for popular consumption. What 
is lacking in them all, however, is a realiza- 
tion of the fact that a conflict on this gigantic 
scale must be explained on broader lines than 
any of those mentioned. Wherever our sym- 
pathies may lie in the present struggle, it be- 
hooves us, as students of the philosophy of his- 

37 



PROBLEMS OF READJUSTMENT 

tory, to take a position far removed from the 
petty interests of any of the contending par- 
ties. Servia tells us that she is fighting for 
independence; Austria maintains that she is 
struggling against political disruption; Russia 
asserts that she is contending for the liberties 
of the smaller Balkan States ; France urges that 
she is endeavoring to restore freedom to her 
lost provinces ; England puts in the foreground 
resistance to the insolent pretensions of mili- 
tarism and protection of small nationalities; 
Germany claims a place in the sun; and Japan 
— well, Japan is fighting to defend large rather 
than small nationalities, that is, to free China 
from German domination. In each country, 
with scarcely a single exception, there has been 
a truly national uprising. Each of the contestr 
ants considers that he is fighting for a hol^ 
cause, and is thoroughly convinced not only of 
the justice of his own claims but of the infamy 
of his adversary's. Rarely in the world's his- 
toiy has there been presented such a spectacle 
of genuine and universal enthusiasm penetrat- 
ing every nook and cranny of the belligerent 
countries, combined not only with an utter in- 
ability on the part of each to understand the 
position of the other, but also with a fierce and 

38 

Gift 



AN ECONOMIC INTERPRETATION 

implacable hatred between tbe more prominent 
contestants. 

But if, amid the actual clash of arms, it is 
impossible for any of the belligerents to see the 
situation in its true light, is there any excuse 
for us, as neutrals and would-be philosophers, 
to content ourselves with the explanations, that 
are born of mutual prejudice! Is it not rather 
incumbent upon us to realize that there are 
deeper world forces at work which are respon- 
sible for the present titanic conflict ; and if so, 
is it not somewhat hasty to endeavor to appor- 
tion praise or blame for what is the inevitable!*^ 
result of world forces? 

The starting-point of our analysis is the ex- 
istence of nationality. Modern, as distinct from 
medieval, and in part from ancient, political, 
life, is erected on national foundations. The 
city states of classic antiquity or of the Middle 
Ages, although forming political entities, had 
no direct relation to the facts of nationality. 
There were in fact no nations : there were peo- 
ples and races and states, but no nations. The 
Greek states warred with each other, and there 
was an Hellenic people; but there was no Greek 
nation. Rome overran the world, and the 
Roman Empire included many peoples and 

39 



PROBLEMS OF READJUSTMENT 

races ; but we cannot properly speak of a Roman 
nation. In the later Middle Ages, the Italian 
and the German cities were often at war with 
their neighbors; but there was no Italian state 
or German state, and still less an Italian nation 
or a German nation. Modern political organi- 
zation, on the other hand, is framed on national 
lines ; and it is now universally recognized that 
the creation in the seventeenth century of the 
first great national states on the continent, as 
well as the solidification of the British common- 
wealth, was due to economic forces. It was now 
that what the economists call the local or town 
economy gave way to the national economy ; it 
was now that land as a predominant economic 
force was replaced or supplemented by com- 
mercial and industrial capital. Land in its very 
nature is local; capital, in its essence, trans- 
cends local bounds. The rise of the national 
state was an accompaniment of the change in 
economic conditions. 

From that time to this the basis of national 
life has been economic in character. I do not, 
of course, desire for a moment to deny that 
other factors have contributed. National con- 
sciousness is a subtle product of many forces, 
among which geographical situation, common 

40 



AN ECONOMIC INTERPRETATION 

language, inherited traditions and similar so- 
cial and political ideals have all contributed to 
perpetuate the racial characteristics which 
differentiate one nation from another. That 
racial and even religious differences have in 
the past frequently led to sanguinary contests 
goes mthout saying; and he would be ven- 
turesome indeed who would dare to predict 
that the future has not in store for the world 
many a conflict referable to these same 
causes. 

If, however, we trace the history of the world 
during the past few centuries we are struck by 
the fact that, on the one hand, nations of dif- 
ferent races have lived together in complete 
amity, and that, on the other hand, separate 
nations belonging to the same race and the same 
religion have often indulged in the most vio- 
lent conflicts. Examples like the war between 
England and the United States, between Chile 
and Peru, between Prussia and Austria, could 
easily be multiplied. If in these cases the old 
explanation of racial antagonism obviously does 
not suffice ; if on the contrary the political con- 
tests in such cases were due to more fundamen- 
tal economic causes, is it not fair to assume that 
as between nations of different races as well, 

41 



PROBLEMS OF READJUSTMENT 

similar economic causes often lie at the bottom 
of the controversy? 

While economic considerations indeed do not 
by any means explain all national rivalry, they 
often illumine the dark recesses of history and 
afford on the whole the most weighty and satis- 
factory interpretation of modern national con- 
tests which are not clearly referable to purely 
racial antagonisms alone. The present strug- 
gle is without doubt to be put into the same 
category. To say, however, that nationalism in 
its economic aspects is the root of the present 
trouble is not yet adequate. For we have still 
to explain why there should have been such a 
recrudescence of nationalism of recent years. 
On the contrary, it might be asked, if the mod- 
ern age is essentially a capitalist age, why 
should we not, in the face of the international 
aspects of capitalism, have a growth of inter- 
nationalism rather than of nationalism? Why 
should we not be on the brink of that era of 
imiversal free trade, of permanent peace and 
of international -brotherhood for which Adam 
Smith and the Manchester School so valiantly 
contended ? Why is it that after the downfall of 
the Mercantile System — which was nothing but 
the economic side of the great national move- 

42 



AN ECONOMIC INTERPRETATION 

ment of the seventeenth and the eighteenth cen- 
turies — we should witness, hand in hand with 
the undoubted growth of international inter- 
course and mutual understanding, the revival 
of the so-called Neo-mercantilism, as found a 
generation ago in almost all the continental 
nations of Europe as well as in the United 
States? And why should we at this very mo- 
ment be in the presence of an almost universal 
emergence of national consciousness which 
threatens to destroy well-nigh everything that 
has been won during the nineteenth century, 
and which in its deplorable aspects is typified 
no less by the Oxford pamphlets of the English 
scientists than by the fulminations of the 
German professors or the decisions of the 
French learned societies? What are the world 
forces which compel human beings, almost per- 
haps against their will, to act as do the foremost 
representatives of our present-day civiliza- 
tion? 

If I read history aright, the forces that are 
chiefly responsible for the conflicts of political 
groups are the economic conditions affecting 
the group growth. These conditions have of 
course assumed a different aspect in the course 
of history. The first and most obvious reason 

43 



PROBLEMS OF READJUSTMENT 

leading to an expansion of a political group is 
the desire to insure a food suppl}^ for the grow- 
ing population. It is today a fairly well estab- 
lished fact that the forces which set in move- 
ment the migration of the peoples from Asia 
to Europe and which were responsible for the 
so-called irruption of the barbarians were pri- 
marily the inability to maintain the flocks and 
herds, owing to the gradual desiccation of the 
original home, and the necessity of seeking 
fresh pastures abroad. We have recently been 
taught that the secret of the implacable enmity 
between Rome and Carthage was the desire to 
retain Sicily as the granary of the world. The 
need of an adequate food supply is the first con- 
cern of every political entity. 

The next step in the economic basis of po- 
litical expansion is the desire to develop the 
productive capacity of the community. This al- 
ways assumes one of two forms. Where agri- 
cultural methods are still primitive and agri- 
cultural capital insignificant, the system of cul- 
tivation is necessarily extensive. As a conse- 
quence, and especially in those countries where 
slavery has developed, the need of a continual 
supply of fresh land as a basis for profitable 
slave cultivation, becomes imperative. It is this 

44 



AN ECONOMIC INTERPRETATION 

fact which explains the Mexican War in the 
history of the United States, as well as number- 
less conflicts of former ages in other parts of 
the w^orld. 

On the other hand, where agriculture has 
been supplemented by an active commercial in- 
tercourse, and especially in the case of coun- 
tries contiguous to the sea, the desire for the in- 
crease of wealth based on commercial profits 
has in the past everywhere led to a struggle 
for the control of the trade routes. From the 
time of Phoenicia down to the domination re- 
spectively of the Hanse towTis and of Venice, 
the grandeur and decay of civilization may al- 
most be written in terms of sea power. 

All these changes, however, were anterior to 
the growth of modern nationalism. What, then, 
are the points in which modern struggles differ 
from their predecessors? 

From this point of view it may be said that 
the first stage of modern nationalism represents 
an analogy rather than a contrast ; and that it 
is only in the later stages that the real differ- 
ences are to be sought. In the first stage of 
modern nationalism we find in fact a combina- 
tion of the three forces which, as we have seen, 
played so important a role in former times. 

45 



PROBLEMS OF READJUSTMENT 

The closing of the land route to India, 
through the Mohammedan conquest of Con- 
stantinople, and the discovery of the New 
World were the two chief factors which led to 
the development of nationality in the sixteenth 
and seventeenth centuries. It was at this time 
that the great colonial empires of Spain, Por- 
tugal, Holland, France and England were 
formed. The struggle to protect the economic 
interests involved in the colonial system led 
necessarily to an organization on a national 
scale. The real basis of the early colonial sys- 
tem, however, was the attempt to secure either 
raw materials for the incipient manufactures 
of the mother country, or crude articles like 
the spices from the East Indies, or treasure 
from America. The early colonial system, 
which itself marks the transition from medieval 
feudalism to modern capitalism, thus represents 
an attempt to increase the area of the supply 
of certain kinds of food, or the endeavor to 
expand the basis of productivity by the acquisi- 
tion of fresh land calculated to yield raw ma- 
terials or, finally, the effort to secure what was 
considered the essence of wealth itself in the 
shape of the precious metals. In order to ac- 
complish each of these results, a great navy 

46 



AN ECONOMIC INTERPRETATION 

was necessary, and such a navy could be pro- 
vided and maintained only along national lines. 
Before long, however, the accumulation of 
capital derived from the profits of the colonial 
empire found its chief utilization in an appli- 
cation to industry; and as this capital grad- 
ually percolated through business enterprise, 
the whole form of economic organization was 
changed. In the place of the medieval guild 
system where the same individual bought the 
raw material, fashioned the commodity, and 
sold the product to the consumer, there now' 
grew up what was later on known as the do- 
mestic system, that is, the system where the 
first and third stages of the process were in 
the hands of capitalists who could both buy the 
raw material and sell the product on a large 
scale, while the second stage in the process was 
still carried on by the individual workman in 
his own home. The emphasis was consequently 
now put upon the protection of this national 
industry against its rivals, and the colonies 
henceforth became important, not so much as 
sources of raw material as, on the other hand, 
favorable markets for the commodities manu- 
factured in the mother country. The so-called 
Mercantile System was badly named: because 

47 



PROBLEMS OF READJUSTMENT 

although it is true that the prosperity of both 
colonies and mother country depended on the 
interchange of products carried on through 
overseas commerce, the essence of the system 
was the development of domestic industry on a 
national scale. The great wars of the seven- 
teenth and eighteenth centuries, fought in or- 
der to contt'ol the sea and to expand the colonial 
empire, all had in view the development of the 
nascent industry on capitalist lines. Protec- 
tion of industry was, therefore, the character- 
istic mark of nationalism during this period. 

With the advent of the nineteenth century, 
however. Great Britain was ready to enter upon 
the next stage of development. Having built 
up her industry by the most extreme and ruth- 
less system of protection that the world has 
ever known, and having wrested a large part of 
her world empire from her competitors, Eng- 
land now found it to her interest to go over 
from a system of protection to one of free trade. 
The free-trade movement, as is almost always 
the case with great economic transitions, was 
only ostensibly in the interests of the consumer, 
but actually in the interests of the producer. 
Thanks to a favorable conjuncture of events fa- 
miliar to all scholars, the industrial revolution 

48 



AN ECONOMIC INTERPRETATION 

— which means the complete application of cap- 
italism to every stage of the productive process 
— took place first in England, and thus consoli- 
dated her position of industrial primacy. But 
as free trade and universal peace were obvi- 
ously the means best calculated to perpetuate 
this industrial monopoly, we find Great Britain 
from this time onward desirous of living in 
amity with all those countries which had for- 
merly been her rivals, but which were now hope- 
lessly distanced in the industrial race and which 
were henceforth to be regarded as the most 
desirable markets for the output of British fac- 
tories. 

With the gradual spread of the factory sys- 
tem, however, into the continental countries, a 
new situation was engendered. In the first 
place, economic pressure upon Germany and 
Italy gradually resulted in the creation of a 
political nationality in order to mobilize the 
economic forces on a national scale. As a con- 
sequence, we find emanating from those coun- 
tries, as soon as nationality was achieved, pre- 
cisely the same movement of protection to in- 
dustry which had characterized the Mercantile 
System several centuries earlier. Just as na- 
tionalism was the real basis of the early Mer- 

49 



PROBLEMS OF READJUSTMENT 

cantilism, so this movement now came to be 
called Neo-mercantilism. In France, indeed, 
where, as we know, nationalism had been 
achieved at an earlier date, the new move- 
ment assumed a slightly different form, 
namely, that of competition for the mar- 
kets of the world. It was this competi- 
tion for the world market which now, after 
the period of quiescence and universal good will 
during the sixties and seventies, led in the 
eighties to the new movement for the in- 
crease of the colonial empire on the part of both 
England and France, and which at one time 
almost threatened to bring those two great na- 
tions into collision in Africa. Moreover, the 
advent of the industrial revolution in Germany 
and the transition from the domestic to the 
factory system immensely increased the tempo 
of the evolution. Whereas in the first decade 
after the formation of the German Empire the 
chief emphasis was put by Bismarck upon pro- 
tection, now towards the close of the century 
the national industry had been built up to such 
an extent that Germany soon joined France in 
competing for the world market against Eng- 
land. 

This transition from a period of protection 
50 



AN ECONOMIC INTERPRETATION 

to a period of competition for markets would 
not, however, have sufficed to bring about the 
present gigantic struggle. The most important 
phase of modern industrial capitalism still re- 
mains to be explained. After national industry 
has been built up through a period of protec- 
tion, and after the developed industrial coun- 
tries have replaced the export of raw materials 
by the export of manufactured commodities, 
there comes a time when the accumulation of 
industrial and commercial profits is such that 
a more lucrative use of the surplus can be made 
abroad in the less developed countries than at 
home with the lower rates usually found in an 
older industrial system. In other words, the 
emphasis is now transferred from the export 
of goods to the export of capital. 

England reached this stage a generation or 
two ago. For England, as is well known, has 
largely financed not only North and South 
America, but also many other parts of the world 
as well. In fact, the chief explanation of Eng- 
land's immense excess of imports is to be found 
in the profits from her surplus capital annually 
invested over the seas. Because of her later 
transition to the factory system, France fol- 
lowed at a subsequent period, but even then 

51 



PROBLEMS OF READJUSTMENT 

only to an inconsiderable degree. For in the 
first place, the virtual cessation in the growth 
of population prevented any such increase of 
output as in England, although naturally aug- 
menting the per capita wealth, and especially 
the prosperity of the peasant. And in the sec- 
ond place, since the French are far more con- 
servative, largely for the reasons just men- 
tioned, their annual surplus, such as it is, has 
been invested chiefly in contiguous countries 
like Spain and Belgium, and later on, for obvi- 
ous reasons, in Russia. Thus France did not 
develop into any serious competitor of Eng- 
land in the capital market of the world. On 
the other hand, the significant aspect of recent 
development is the entrance of Germany upon 
this new stage of development. The industrial 
progress of Germany has been so prodigious 
and the increase of her population so great, 
that with the opening years of the present 
century she also began on a continually larger 
scale to export capital as well as goods. It 
was this attempt to enter the preserves hith- 
erto chiefly in the hands of Great Britain 
that really precipitated the trouble. For if 
tihe growth of national wealth depends upon 
the tempo of the accumulation of national 

52 



AN ECONOMIC INTERPRETATION 

profits, and if the rate of profits is, as 
we have seen, far greater in the application 
of capital to industrially undeveloped coun- 
tries, it is clear that the struggle for the con- 
trol of the international industrial market is 
even more important than was the previous 
competition for the commercial market. 

Other and more familiar phases of the eco- 
nomic struggle have no doubt played their role 
in the various countries. It is indubitable, for 
instance, that Russia, still a predominantly 
agricultural community, is endeavoring to se- 
cure Constantinople partly in order to obtam 
an unrestricted vent for her wheat, partly iu 
order to acquire a port which will not be ice- 
bound for the greater part of the year, and 
partly in order further to consolidate the basis 
of her national wealth. Austria, which is some- 
what further advanced in industrial develop- 
ment, is assuredly interested in preventing in- 
terference with her economic hegemony in the 
Balkan States. Germany, because of her close 
union with Austria, is almost equally con- 
cerned in resisting the Russian pretensions. 
France, finally, would naturally seek to recover 
her lost provinces whenever the opportunity 
for an effective cooperation with Russia pre- 

53 



PROBLEMS OF READJUSTMENT 

sented itself. So that those who desire to inter- 
pret the war on the lines of an economic strug- 
gle between the Teuton and the Russian civi- 
lizations would find no little basis for their con- 
tentions. All these, however, would not suffice 
to explain the one thing which needs elucida- 
tion : Why has the present contest attained the 
dimensions of a veritable world war, and why 
has it become clear, not only to the dispassion- 
ate observer, but to the contestants themselves, 
that the real struggle is between England and 
Germany ? 

If, however, Germany and England are the 
real antagonists, the true interpretation of the 
war must rest on this antagonism. From this 
point of view it is significant that England 
should now for more than three centuries have 
fought her way up with successive rivals in turn. 
In the seventeenth century, England's chief 
fight was against Holland ; in the eighteenth cen- 
tury her greatest antagonist was France, and 
now, finally, she has locked horns with Germany. 
To the student of economic history, the present 
war, however, was just as inevitable as its pred- 
ecessors ; in this case, as in the others, it seems 
unnecessary to advance the minor explanations 
which are currently found. England's war with 

54 



AN ECONOMIC INTERPRETATION 

Holland was a struggle for the control of the 
seas as a prelude to the expansion of national 
industry. England's wars with France were 
contests for colonial empire resting on a com- 
petition of markets for goods; England's war 
with Germany marks the final stage of a com- 
petition involving not simply the export of 
goods, but the export of capital. 

While Germany was in the first stage of eco- 
nomic nationalism she took relatively no inter- 
est in colonial expansion, but was busily en- 
gaged in developing her industrial power and 
in utilizing to that end the same weapon of pro- 
tection which had served Great Britain in such 
good stead in preceding centuries. With the 
consolidation and development of industrial 
enterprise Germany soon entered upon the sec- 
ond stage of economic nationalism, that of com- 
peting for the markets of the world. The ex- 
port of commodities thus led naturally to co- 
lonial expansion, as a result of which the early 
Bismarckian policy was reversed. With the be- 
ginning of the present century, however, Ger- 
many entered upon the third stage of economic 
nationalism, supplementing the export of goods 
by the export of capital. Now it was that there 
emerged the real rivalry with England. Now 

55 



PROBLEMS OF READJUSTMENT 

for the first time there came into view the pos- 
sibility of the financial control of large sections 
of the world, of which Morocco and Asiatic Tur- 
key are good examples. These efforts for finan- 
cial control represented a penetration of back- 
ward countries by a developed capitalism — a 
peaceful penetration if possible, but a penetra- 
tion at all costs. For Germany was learning 
the lesson from England's experience, and was 
fully aware of the fact that a financial or cap- 
italistic domination is the surest avenue which 
leads toward commercial growth and which 
renders probable the greatest multiplication 
of profits. 

This consideration seems of slight weight. 
Is it not true, it might be urged, that capital is 
invested in foreign countries by people of all 
nationalities, and that the stock of modern cor- 
porations pursuing their activities in any coun- 
try is distributed among investors of all finan- 
cial countries'? This criticism, however, does 
not touch the core of the matter. For in the 
first place corporation policy is not influenced 
by the minority stockholders at all ; and it is de- 
termined, so far as nationality is concerned, by 
that of the controlling directorate. The fact 
that the shares of the South African mines were 

56 



AN ECONOMIC INTERPRETATION 

traded in on tlie Berlin stock exchange did not 
affect the close connection of tlie British min- 
ing corporations with the Boer War. And in 
the second place, the political influence which 
goes with financial authority is itself respon- 
sible for all manner of economic advantages, di- 
rect and indirect. It would be tedious as well 
as unnecessary to recite in detail the countless 
benefits that England has derived from India, 
or more recently from Egypt, and the number- 
less subtle ways in which she has contrived, just 
as every other nation would have done, to 
retain most of these benefits for herself. For 
who will in any way doubt that under modem 
conditions political preferment is the real open 
sesame to economic advancement! We have 
only to point to what is taking place at this 
very moment between China and Japan. 

The German statesmen were simply learning 
their lesson from the vast book of English ex- 
perience. The German economists were, almost 
to a man, united in the belief that, while it may 
not always be true that trade naturally follows 
the flag, it is clearly not open to doubt that 
political influence paves the way for economic 
superiority and vastly enhances the opportuni- 
ties for economic preferment. It was primarily 

57 



PROBLEMS OF READJUSTMENT 

to augment this political influence and to clinch 
these expected financial and commercial advan- 
tages that a large navy, with coaling places and 
stations throughout the world, became a neces- 
sity. This attempt, however, necessarily con- 
stituted a challenge to England's virtual mo- 
nopoly of sea power and engendered in both 
countries the state of mind which has finally re- 
sulted in the present conflict. 

To say, then, that either Great Britain or 
Germany is responsible for the present war, 
seems to involve a curiously short-sighted view 
of the situation. Both countries, nay, all the 
countries of the world, are subject to the sweep 
of these mighty forces over which they have but 
slight control, and by which they are one and 
all pushed on with an inevitable fatality. Eng- 
land, no less than Germany, Austria no less 
than Russia, cannot escape this nemesis. 
How idle is it, therefore, to speculate as to 
what the particular torch may have been which 
set fire to the conflagration ! How bootless is it 
to attempt to estimate from the blue book or 
the white book or the yellow book which states- 
man or set of statesmen is responsible for the 
particular action that led to the declaration of 
war ! If the war could have been averted now, 

58 



AN ECONOMIC INTERPRETATION 

it was bound to break out in the more or less 
immediate future. Germany like England, 
Austria like Russia, Italy like Servia, each was 
simply following the same law which is found 
in all life from the very beginnings of the indi- 
vidual cell — the law of expansion or of self- 
preservation. 

It is a curious fact that no one should hitherto 
have attempted to explain the paradox of in- 
creasing internationalism combined with the 
recrudescence of the newer nationalism which 
we are witnessing today. And yet, in the light 
of the preceding analysis, the explanation is 
simple. In the earlier days of civilization the 
stranger was the enemy because the economic 
unit was the local unit. With the slow growth 
of trade, these barriers were gradually broken 
down and the feelings of enmity attenuated, 
until, as in the Roman Empire, natural law de- 
veloped as the law common to all peoples. In 
the same way, in the later Middle Ages, the 
local antagonisms were disappearing before 
commercial progress, until we even find dream- 
ers who several centuries ago welcomed the 
speedy advent of the universal republic and 
proclaimed the impending reign of a world 
citizenship. As we have seen, however, the cre- 

59 



PROBLEMS OF READJUSTMENT 

ation of industrial capitalism and the birth of 
nations in the sixteenth and seventeenth cen- 
turies consolidated the economic interests along 
national lines. While individuals now consid- 
ered themselves citizens of a country rather 
than of a town, national antagonisms became 
stronger than the older local antagonisms. Yet 
after the first fierce onset of national power the 
forces of internationalism began to assert them- 
selves, and international law was born, although 
never becoming a very lusty infant. A little 
later, however, when Great Britain had com- 
pleted the first stage of nationalism through 
protection, it was so clearly to her interest to 
emphasize the ties that bind nations together, 
that her philosophers and economists found for 
a time a more or less ready response to their 
cosmopolitan teachings among those countries 
which were not yet quite prepared to start on 
the road of nationalism. Thus it was that by 
the middle of the nineteenth century the pre- 
cepts of Adam Smith were now taken up by 
Cobden and Bright, and were reechoed in Ger- 
many, in Italy, in Russia, and in other indus- 
trially undeveloped parts of the world — with 
the one significant exception of the United 
States, which, having entered after the Civil 

60 



AN ECONOMIC INTERPRETATION 

War upon her first real stage of nationalism, 
turned a deaf ear to the preachings of the Man- 
chester School. 

With the progress of the industrial revolu- 
tion in the United States, however, and with 
her gradual transition from an exporter of food 
to an exporter of finished products, the United 
States was ready to take its place side by side 
with England in preaching the gospel of cosmo- 
politanism and good will, and in emphasizing 
the forces which make for the growth of inter- 
national trade. Had all the nations of the 
world been on the same level of economic prog- 
ress, the very existence of capital as an inter- 
national force would have lent a mighty sup- 
port to the spread of good feeling and inter- 
national fellowship. Unfortunately, it was pre- 
cisely this equality that was lacking. In the 
absence of such a situation, the exploitation of 
the capitalistically undeveloped countries by 
the few nations which had reached the third 
stage of economic nationalism, that of the ex- 
port of capital rather than of goods, became 
the kejmote of a new struggle. Thus it is that 
modern capital, which on the one hand works 
toward real internationalism, peace and public 
morality and which will ultimately be able to 

61 



PROBLEMS OF READJUSTMENT 

accomplish its beneficent results, is at the same 
time responsible for the weakening of inter- 
national law and the revival of a more con- 
spicuous and determined nationalism because 
of the greater prize to be achieved and the 
fiercer struggle necessary to win it. 

In the political life of the world today we 
see the same forces at work as in all life from 
the very beginning — the forces which we sum 
up under the terms of the competitive and the 
cooperative process, the individualistic and the 
collective movement. Just as the animal or- 
ganism was built up by a combination of the 
struggle between the cells and cooperation 
among them; just as human society has devel- 
oped through the advance of the individual 
working hand in hand with the growth of the 
group ; so the world society that is slowly com- 
ing to pass is evolving in obedience on the one 
hand to the competitive spirit of national strug- 
gle, and on the other, to the cooperative forces 
of internationalism — both of them inherent in 
the modern factory system, resting upon indus- 
trial capitalism. At certain stages in the 
world's history the one set of forces seems to be 
in the ascendency, at another stage the opposite 
set ; but in reality they are complementary and 

62 



AN ECONOMIC INTERPRETATION 

are always working together. It is tlie indus- 
trial revolution with the factory system and the 
growth of capitalism which has set in motion 
the mighty forces both of world cooperation and 
of national antagonism. 

In the light of what has been said, the pres- 
ent and the future of the United States form 
an especially interesting subject for considera- 
tion. When this nation was born it was for 
some decades ^veak and puny. It was the genius 
of Alexander Hamilton which realized the true 
economic basis of nationality and which at- 
tempted to start the country on its real career. 
The gradual dominance of American politics 
by the South, the economic basis of which was 
agricultural rather than industrial, was, how- 
ever, responsible for good as well as for evil. 
The emphasis upon states ' rights indeed almost 
destroyed the Union; but the need of a wider 
basis of productivity under the extensive sys- 
tem of slave labor was responsible for the Mex- 
ican War and the rounding out of our imperial 
domain. It was only with the completion of the 
Civil War that this country as a whole entered 
on the first real stage of economic nationalism. 
Thus it was that the United States, following 
the example of Great Britain a century before, 

63 



PROBLEMS OF READJUSTMENT 

built up an enormous industrial power through 
a system of national protection. We are now 
just beginning to reach the stage attained by 
Great Britain three generations ago, the stage, 
namely, of transition from the export of agri- 
cultural products to that of the import of agri- 
cultural produce and the export of manufac- 
tured products. We have not yet reached, and 
it may well be at least another generation be- 
fore we reach, the third stage of economic na- 
tionalism, that of the export of capital on a 
large scale as the typical form of profitable 
enterprise. When we reach that third stage, 
which, as we have seen, carries with it the 
struggle for the exploitation of the relatively 
undeveloped parts of the world, our real trial 
will come, and the true conflict between nation- 
alism and internationalism will begin. Then, 
and then for the first time since the develop- 
ment of our national forces, shall we have an 
opportunity to test the foundation of our his- 
toric friendship with Great Britain. Then, and 
then for the first time, will the situation arise 
when Great Britain, instead of being bound 
solidly to us by the bonds of her financial in- 
terest in us, will face the United States as a 
rival, a rival on the international market for 

64 



AN ECONOMIC INTERPRETATION 

the control of tlie capitalistically undeveloped 
countries. Whether by that time the forces of 
internationalism will prevail and good will and 
peace continue, or whether, on the other hand, 
the United States will be impelled, perhaps 
against her will, to take the place now occupied 
by Germany, can be foretold by no one. 

Finally it may be asked what is to be the 
outcome of all this? Are wars to go on for- 
ever? Is the present struggle, gigantic though 
it be, simply a forerunner of wars still more 
gigantic! Or, on the other hand, are the 
dreams of our pacificists to become true, and is 
universal peace to be realized? 

If there is any truth in the preceding analy- 
sis, both of these things are coming in the full- 
ness of time. That is, we are to have more 
wars, but we are to have ultimate peace. The 
reason that we are to have more wars is simply 
because of the fact that what we call the indus- 
trial revolution is in reality only a gradual 
change, and that this change is but slowly per- 
meating the world. That part of the earth's 
surface which is occupied by countries with a 
highly developed industrial capitalism is rela- 
tively small. Although capitalism is spreading 
throughout the West and South of the United 

65 



PROBLEMS OF READJUSTMENT 

States and effecting a lodgment in Canada and 
Japan and Russia, it is only beginning in the 
rest of Asia and Africa as well as in South 
America and Australia. As long as there are 
vast stretches of territory still waiting to be 
developed, so long will they prove to be a lure 
to the industrially advanced nations of the 
world. England, and to a much less extent 
France, have until recently provided this capi- 
tal. Whatever be the outcome of the present 
war, however, nothing, if our analysis is cor- 
rect, can check the ultimate tendency of coun- 
tries like Germany, and later on Japan and 
the United States, to be followed still later by 
other countries, to secure their share of these 
lucrative opportunities. Whatever may be the 
immediate results of the present situation, or 
with whatever great success the attractive and 
even noble ideal of an imperial British federa- 
tion may be realized, England can scarcely ex- 
pect in the long run to retain the monopoly or 
the domination which it has achieved and which 
it built up during the nineteenth century as a 
result of the lucky accident of being the first 
country to experience the industrial revolution 
and to exploit her coal supply, England's pri- 
macy was no doubt deserved, and is assuredly 

66 



AN ECONOMIC INTERPRETATION 

welcome to many of us ; but from the point of 
view of world forces, it is difficult to resist the 
conclusion that it also is destined to disappear. 
Rome was able to create a world empire and to 
maintain it for several centuries because there 
was no economic expansiveness in the outlying 
constitutent members of the empire. Great 
Britain will find it far more difficult to create 
a world empire permanently dominating all 
other countries, for the simple reason that in- 
dustrial capitalism is destined to overrun the 
world. Even today England is able to retain 
India only by strict commercial control and by 
sedulously preventing the growth of any na- 
tional industry in that huge empire. 

The above forecast as to the probability of 
the continuance of war rests indeed on an as- 
sumption that may be challenged. It might be 
urged that civilization is progressing so rapidly 
that the nations of the future will realize the 
economic waste, the inexpressible horror, and 
the irreparable ravages of war, and that com- 
mon decency and ordinary humanity will impel 
the world into an abandonment of what is essen- 
tially the mark of savagery. However deeply 
and even passionately we may desire such a 
consummation, it must be confessed, in all hu- 

67 



PROBLEMS OF READJUSTMENT 

mility, there seems to be sliglit warrant for its 
expectation. If indeed the chief nations of the 
world were to abandon all efforts to secure sel- 
fish advantage for themselves; if an interna- 
tional pact could be arranged so that each na- 
tion would cheerfully divide its opportunities 
with its neighbors, and would welcome the en- 
trance of continually new claimants into the 
agreement ; if, in other words, generosity were 
to replace selfishness in national arrangements, 
the outlook might, indeed, be very different. 
But with the frailty of human nature, as it un- 
fortunately still exists ; with the undoubted na- 
tional consciousness which is suffused at pres- 
ent with the distinctively modern emphasis 
upon the importance of the material basis of 
the higher life; and above all with the oppor- 
tunity afforded to each nation to reach out for 
its share of almost boundless prosperity by 
grasping the new opportunities afforded to 
modern capitalism, it seems hopeless to expect 
any effective resistance to a temptation which 
is so compelling, so illimitable, and so promis- 
ing of success under the conditions of actual 
economic life. No more striking illustration of 
the real forces that dominate the foreign policy 
of modern nations can be found than the vain 

68 



AN ECONOMIC INTERPRETATION 

effort recently made by certain Italian states- 
men to repress the popular feeling and to pre- 
vent their country from joining a war the hor- 
rors of which had been for months clearly be- 
fore the eyes of all. Pacificism seems destined, 
for the near future at least, to remain an unat- 
tainable ideal; for it is both blind and deaf to 
the effect of modern capitalism in accentuating, 
rather than attenuating, the lure of the eco- 
nomic life. 

But if, then, we are likely to see during the 
next few generations wars on an even greater 
scale than the present one, will this endure for- 
ever! Not if our analysis is correct. For when 
once the time comes that industrial capital will 
have spread to the uttermost parts of the earth ; 
when China and India and Africa and the rest 
will all have been as fully supplied with capital 
as are now Great Britain and Belgiimi and Ger- 
many; when, in other words, the industrial 
revolution will have permeated the world, then 
the economic basis will have been laid for two 
supreme events. In the first place, there will 
no longer be any exploitation of the backward 
countries, because there will be no industrially 
undeveloped countries to exploit. Then the 
whole world will be divided up into a series of 

69 



PROBLEMS OF READJUSTMENT 

empires, perhaps a dozen or more, on a level 
of comparative equality economically, and 
therefore politically. With such a relative 
equality of industrial development, and in the 
absence of any important foreign territory to 
be exploited, each nation will then find it to its 
interest to develop what is best within itself in 
order to carry on a peaceful exchange of com- 
modities with the other nations. Then, and 
then only, will Adam Smith's dream be realized, 
namely, that each nation will be able to utilize 
its own climatic and other economic advantages 
in a peaceful struggle with other nations. 
Then, and then only, will universal free trade 
become profitable to all, and the rule of inter- 
national amity become enduring. Then, and 
then only, shall we have the secure foundation 
laid for the world republic and for the coopera- 
tion of all races and of all peoples toward a 
common ideal. 

In the second place is the industrial revo- 
lution. Just as the industrial revolution 
changed England from an aristocracy to a 
democracy, just as the industrial revolution in 
the United States is re-creating a new South on 
a democratic basis, so the spread of the indus- 
trial revolution will bring democracy through- 

70 



AN ECONOMIC INTERPRETATION 

out the world and will enable every country to 
turn its efforts to tlie ideals of a political and a 
social democracy. Then we shall not have to 
spend more money for dreadnoughts than we 
do for social progress. 

To predict how soon this change will come 
about is idle. All that can be said is that the 
change is in progress, and that in this change 
there seems to lie the chief hope of the world's 
future. "What the particular economic organi- 
zation of the future is to be, it is not the pur- 
pose of these pages to discuss. My point will 
have been attained if we clearly keep in mind 
the inevitable spread of industrial capitalism, 
irrespective of the fact by whom the capital is 
to be controlled. Capitalism on an interna- 
tional scale may well lead during the next few 
decades to a strengthening of certain forms of 
international cooperation and fellowship, so 
ardently desired by all forward-looking think- 
ers. But industrial capitalism will not have 
completed its allotted task until it shall have 
brought about the reign of national economic 
equality which alone will serve as the basis of an 
enduring internationalism. Whatever may be 
the influence of the other factors, ponderable or 
imponderable, that contribute to civilization, it 

71 



PROBLEMS OF READJUSTMENT 

is scarcely open to doubt that the dominant 
forces which are actually molding history to- 
day are primarily economic in character, and 
are as a consequence intimately associated with 
the great transition that is at present taking 
place in the economic organization of the world. 
Unless the present conflict is studied in the light 
of these world forces, its lesson will not have 
been read aright. 




021 394 574 9 



